Valuation at discount, Corporate Bond prospects attractiveThe positive atmosphere has driven the performance of the corporate bond market. As of the end of June this year, the ICE Bank of America U.S. High Yield Bond Index recorded a 5.41% increase1. There are reasons for the good performance of corporate bonds this year. After the 2022 cut, many bonds are trading at significant discounts to face value. For example, the price of investment-grade corporate bonds has fallen to the lowest level since 20082, thus providing very attractive total return potential.In addition, according to historical data, U.S. investment-grade corporate bonds rarely experience negative annual returns, and negative returns for more than two consecutive years are even rarer; similarly, U.S. high-yield bonds have never experienced negative returns for two consecutive years.When investing in corporate bonds, one of the risks that needs attention is the default rate, and the default rate of U.S. investment-grade corporate bonds has always been very low; in terms of U.S. high-yield bonds, the default rate in dollar-weighted terms is only 2.71%. If The issuer-weighted calculation is as low as 1.53%3. Both calculation methods are also lower than the long-term average, reflecting the overall solid financial status of the company.After the Federal Reserve has repeatedly raised interest rates, the U.S. economy has continued to grow, which has greatly surprised the market. However, some investors are worried that the effects of tightening monetary policy have not yet appeared, and they are worried that high interest rates will always affect household wealth, consumption intentions and Property market trends. In view of this, while investors participate in the rise in corporate bonds, they also need to take defensive measures, such as using U.S. Treasury bonds to protect their principal. At the same time, U.S. Treasury bonds can also provide higher and more reliable returns when interest rates rise sharply.Focus on profitability and qualityIn summary, as the tightening cycle matures, different bonds will bring different effects: U.S. Treasury bonds or agency bonds can provide a safe haven for the investment portfolio and bring sustained income and ample liquidity; U.S. investments Grade bonds are expected to create stable returns based on quality; while U.S. high-yield bonds can increase overall income and total return potential while reducing overall duration risk.It is worth noting that diversification of investments is important, but if the composition of bonds is too complex, investors may also face unpredictable risks. For example, the performance of U.S. mortgage-backed securities is closely related to the housing market, while bonds rated CCC or below have quality doubts. Constructing a simple but high-quality bond portfolio will more effectively achieve the goals of capital appreciation, income generation and risk reduction.Want to search and invest in related funds?Open the WeLab Bank App and click【GoWealth > Pick your own funds > Bond & Money Market > Global Income】to find out more!Source:1Intercontinental Exchange, data as of 30 Jun 2023
2Intercontinental Exchange and AllianzGI, data as of 30 Jun 2023
3Intercontinental Exchange and AllianzGI, data as of 30 Jun 2023Importance Notice
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